The Cost Tolerance Threshold

My wife has her personal definition of value and it is governed, in order, by the concepts of price, quality and convenience.

She was enamored with a retail clothing website, the name of which I forget at the moment, which does a remarkable job of data analytics to deliver nearly exactly what she wants - almost like reading her mind.

That is nothing special but what got her attention was ... price. The prices for their fashions were nearly 80% less than retail and much less than any other source.

The quality of the clothing was top notch too - great brands, good looking fashions... everything a style conscious girl could want.

The risk was convenience, which was traded for price.

The catch to this particular website is that the fashions were all one off, or of very limited quantity, over stock items and the purchase is FINAL - no returns, no warranty, no nothing. You buy it you own it period.

In addition, there is no prompt item delivery. The promise is that the item will get to you, eventually. Not next day, not next week, but in due course according to their fulfillment schedule, not your desired schedule.

It's obvious how the price is so, so low.

When the order finally arrived, my wife was not as excited as I thought she would be and she remarked that she would not buy from the website again.

The price was fantastic she recounted. So good that even if the dress didn't fit she didn't mind because she could gift it or donate it - the cost of the item was so low that she wasn't concerned about the money.

The quality was fantastic -- in this case the dress fit and was beautiful. The fabric was light and colorful, the manufacturing was top notch. Quality of the merchandise was not where the objection came from.

The objection came from convenience. To her the low price wasn't worth the nearly month long wait for the merchandise, or the time she spent on the site going through all of the one-off items in her decision making process to satisfy her assessment on fit.

In other words, my wife's purchase decision was still subject to what I call Cost Tolerance Threshold.

Everyone has a Cost Tolerance Threshold. I define the CTT as that point in the purchase decision making process where no matter the cost, other factors overcome the desire to purchase. In other words, other factors override price in a purchase consideration.

Some CTTs are quantitative in nature - the numbers don't add up to a positive purchase decision. Sometimes CTTs are qualitative in nature, like my wife's experience. Her dissatisfaction had nothing to do with any quantitative measure - she just was impatient and felt a need to get the goods faster than they deliver.

Workers' compensation is full of CTTs. Some are quantitative and some are qualitative.

The employer's CTT is usually quantitative, and is muted by the fact that generally workers' compensation is, through most employer's eyes, a commodity governed by price (we know differently!).

The injured worker's CTT is more often qualitative, governed by how well the IW feels she is being treated and recovering.

In between these two extremes is where we operate in the professional workers' compensation world. Much of claims management is governed by price, but at some point in time other factors override price and this may include availability of service, quantity of product, measure against a guideline, etc.

For instance, the recent trend across the nation to constrict physician dispensing has occurred because our CTT has been violated - there has been no demonstrable benefit to physician dispensing to justify the very much higher prices being charged for the same drugs that can be purchased at a pharmacy.

Sometimes our personal CTT may cloud the decision making process and inhibit good claim management because some value component does not ameliorate the CTT.

CTT is part of the value proposition and much of the friction I see in workers' compensation arguments is tied to one person's CTT not aligning with another's CTT. Some are liberal, some are conservative, some are in the middle, but everyone has their own, personal CTT.

We do this subconsciously - there is always some line in the sand that we mentally can not cross because some factor affects our perception of value.

Awareness of one's own personal CTT in any given situation won't fix the world but it may bring pause to consider the elements that one deems to be part of the value returned for the money or energy expended.

The next time you make a decision affecting a claim think about your CTT and whether that limit is interfering with rational processes.

Ultimately my wife's sense of value, the overriding consideration being price, got the best of her and she returned to that web site to order more fashions at ridiculously low prices, delivery be damned!